The world's largest physical bullion buying nation are hungry for gold but are government policies restricting trade?

The Gold Dealers in Mumbai's Zaveri Bazaar, India's largest Gold Bullion market, look sheepish as telephones go unanswered and customers dash from store to store, fuelled by rumours of stock, as buyers desperately seek out dealers with gold in any form to sell!

The usually buoyant Bullion dealers are having to turn customers away as they struggle to source metal to sell, a result of government enforced import restrictions which has seen hardly any gold has enter the country since mid-July.

The Indian Festival season is underway… traditionally the busiest time for the Indian gold trade as families purchase gold gifts and dowries for marriages which, in India are typically held around auspicious days in the festival calendar, celebrating harvest and Lakshmi, the goddess of wealth.

Trying to counter a huge import/export trade deficit and weakening Rupee, the Indian government have imposed strict regulation on the import of gold - India's second largest import after oil. Gold entering the country is currently subject to a hefty 10% import duty and regulation states that 20% of metal imported must then be re-exported! The extensive cost and complex rules have reduced trade at the majority of Mumbai's bullion dealers by as much as 90%.

The scale of demand and scarcity of the metal has pushed premiums close to $100 per ounce over the London Gold Price, far higher than the average $2 premiums of neighbouring Asian countries in the region. Even on the black market, gold illegally smuggled into the country is fetching premiums in excess of $50 per ounce.

The situation is set to ease in coming weeks as fresh supplies are due to arrive in the country but these are destined to banks and larger bullion dealers, leaving many of the smaller jewellery manufacturers without the core materials needed to restart production.

India has long been the world’s largest physical gold buyer, taking delivery of 864 tonnes of the precious metal in 2012 alone according to the World Gold Council. The current situation in Indian demonstrates the strength of gold in the global economy and the fear governments hold for the precious metal!